CSR spending and corporate dividend decision in India: evaluating firm’s legitimacy in stakeholders’ engrossment

What the paper says

Purpose Corporate social responsibility (CSR) involves legal requirements and moral principles in business strategy development. This study aims to examine the CSR spending-dividends relations of Indian firms. It delves into the impact of audit quality and firm size as factors that influence the perception of legitimacy in the relationship between CSR spending and the dividends nexus, focusing on stakeholders’ concerns. Design/methodology/approach Partial least squares structural equation modelling (PLS-SEM) is employed to examine the impact of CSR spending on dividend decisions. This study encompasses 207 companies listed on the S&P BSE 500 in India, spanning 2015–2022. Findings The study reveals a positive association between CSR spending and dividend decisions in the Indian context, reinforcing stakeholder theory while contradicting the agency problem. Companies investing in CSR enhance shareholder value through dividend distributions, effectively reconciling their financial responsibilities with social commitments. The adverse effect of audit quality on the CSR–dividend relationship underscores the stringent risk assessment and reporting standards upheld by Indian corporations. Additionally, the positive and significant influence of firm size on the CSR–dividend relationship, except for larger enterprises, indicates that the financial strategies of Indian firms align with shareholders’ economic and societal interests. Originality/value First, the authors analyse the actual CSR efforts made by Indian businesses on the CSR–dividends nexus. Second, to the best of the author’s knowledge, no study examines the company’s legitimacy in meeting the financial and nonfinancial concerns of the stakeholders.